Latest SGE Withdrawals Lowest Since 2012, But What's The Significance For Gold Stock Investment?

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Gold withdrawals from China's Shanghai Gold Exchange fell by 626 tonnes in 2016 compared with a year earlier.

Mainstream analysts seem to disregard SGE withdrawals data as being equivalent to total Chinese demand using a much more narrow definition.

Gold imports from countries which publish full breakdowns of their gold exports, plus China's own annual gold output, are far closer to the SGE data than to analysts' demand estimates.

Major gold ETF inflows during the year counterbalance around half the Chinese shortfall despite significant outflows in the second half of the year.

Despite the fall in SGE gold withdrawals gold price performance has been positive overall in 2016 and gold has started 2017 in a stronger mode too.

Followers of Chinese gold demand should consider Shanghai Gold Exchange (SGE) gold withdrawal figures at the very least as an excellent guide to the country's demand trends. The mainstream gold analysts - namely Metals Focus (which also provides data to the World Gold Council for its Gold Demand Trends publications), GFMS and CPM Group - tend to disregard the SGE Figures and come up with far narrower definitions of Chinese gold demand/consumption, but these figures fall far short of the SGE Withdrawals data as for the most part they don't include financial sector demand, which can be quite substantial in China. Nor do their figures correlate in any shape or form with known mainland Chinese gold imports given that principal conduits for gold flows into China - Hong Kong, Switzerland, the USA, the UK and Australia - all publish detailed country by country breakdowns of their gold exports. Adding these together, plus China's own gold output - the world's largest at around 460 tonnes annually - alone come to very considerably more than the analysts' estimated Chinese consumption figures. And even this takes no account of direct imports from other gold producers who do not publish country-by-country breakdowns of their gold exports, nor for domestic gold scrap supplies.

Overall we reckon these all added together come far closer to the SGE withdrawal levels which, incidentally, are also reckoned to equate exactly to Chinese wholesale gold demand in information published in the China Gold Association's annual Gold Yearbook. Why the mainstream analysts seem to ignore these figures remains something of a mystery. For example, rest assured that when the World Gold Council comes up with 2016 gold demand figures, these will only look at the narrow gold demand definition they have in the past which will only be around half the SGE reported withdrawals figure. And the world's mainstream media and many gold analysts will seize on as being an accurate figure for latest annual Chinese gold consumption. It is not, at least in terms of total gold being absorbed by the world's largest gold importer. And remember, China forbids gold exports so what goes into China stays in China.

A table of month by month gold withdrawal figures out of the SGE for the past three years is set out below. As will be apparent total 2016 gold withdrawals were 24% lower than in the record 2015 year, which supports the anecdotal evidence of a sharp decline in Chinese gold consumption during the year. However, if we go back to 2012, SGE gold withdrawals came only to 1,134 tonnes which demonstrates the huge pick up in flows into the Chinese mainland since then

Table: Shanghai Gold Exchange Monthly Gold Withdrawals (Tonnes)





% change 2015-2016

% change 2014-2016





- 11.8%






- 31.2%
























- 29.2%






- 58.8%






- 45.6%


























Full Year






Source: Shanghai Gold Exchange,

If we equate the SGE withdrawal figures above to total Chinese gold demand in 2016 this appears to have dropped by 626 tonnes over the year. Perhaps a little over half of this will have been countered by net inflows into the major Western gold ETFs. Despite major sales in the second half of the year these net inflows are exemplified by the biggest gold ETF - SPDR Gold Shares (NYSEARCA:GLD) - which added a net 179.8 tonnes during 2016. GLD accounts for a little less than half the total holdings of gold in ETFs.

The significance of this for gold and gold stock investors is uncertain at the moment. Despite what has been this significant fall in apparent Chinese demand during the past year, the gold price has generally been stronger in 2016 than in 2015 despite the China demand fall-off and we have, so far, seen something of a gold price pick-up since the beginning of 2017 which would seem to be a little anomalous too. However the Chinese New Year holiday begins on January 28th so demand probably remains strong for the time being.

It has also been apparent - in another anomaly - that when Chinese demand has been at its strongest - in 2013 and 2015 in particular - the gold price has weakened badly suggesting a lack of correlation between Chinese physical imports and demand and the gold price itself. This suggests that the overall fundamental supply/demand equation for gold as a commodity is not the major factor in pricing and that it is gold futures, and inflows or outflows from the gold ETFs, which are currently the principal price drivers. However as more and more physical gold is absorbed by China and the SGE, which deals in physical gold rather than the paper gold which dominates the Western pricing systems, the greater the pressure on gold prices. SGE benchmarks have been being set $20-$40 higher than London and New York, but the latter have been playing catch-up over the past week and we suspect they will move closer to parity with Shanghai, as the first price to be set in the day, beginning to lead the way.

Overall this suggests that gold is in for a period of revival, although there will undoubtedly be setbacks along the way as the Fed deliberates over raising interest rates as the Trump Presidency gets under way. While some of President Trump's policies may benefit the U.S. economy, others spell danger - and even the beneficial ones may run into domestic opposition.

With gold and silver stocks likely to outperform the metal prices, as they tend to in a positive market, we would stick by our prior recommendations and rather than repeating them again here in full we would refer readers to my previous articles which set these out: Gold: New Year Reversal Or Dead Cat Bounce? and 2017 Predictions - Gold, Silver, PGMs, The Dollar, Markets and Geopolitics. Even so I'll briefly reiterate some of my top picks for the year namely Hecla Mining (NYSE: HL), Barrick Gold (NYSE: ABX) Newmont Mining (NYSE: NEM) and, as recovery stocks Goldcorp (NYSE: GG) and Gold Fields (NYSE: GFI), among others. Some juniors may do better, but these can be much more risky and if one wants to invest in these it may be worth investing in a basket type investment like the Van Eck Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.